by Kira Kay – PBS Newshour / The Bureau for International Reporting – Original Air Date: June 14, 2010

Correspondent Kira Kay reports on a Canadian hunt for “rare earth” minerals, elements mined almost exclusively in China, that are key to emerging green technologies, cell phones, engines and other high-tech devices despite their short supply. Includes interview footage with Jack Lifton.

Sometimes things actually move pretty quickly in Washington. The FY2011 National Defense Authorization Act [NDAA] was passed on Friday by a vote of the US House of Representatives, with a comfortable margin. As reported earlier this week, the Act contains provisions pertaining to the rare earth supply chain, with a set of mandates directing the Department of Defense to take specific actions regarding the supply chain as a whole. Contained in Section 835, these provisions successfully made it through the process and are part of the final passed House version of the bill. The next step will be for the Senate to work on its own version of the NDAA, for the two items to then be amalgamated in conference, before being signed into law later this year.

Prior to the vote of the full House on the bill, Rep. Mike Coffman [R-CO] on behalf of himself and Rep. Brad Ellsworth [D-IN] proposed an Amendment to the bill, relating to neodymium-based [Nd-Fe-B] permanent magnets. The Amendment [#6 on the list] looked to add a new Section 839 to the bill, titled “Defense Industrial Base Priority For Rare Earth Neodymium Iron Boron Magnets”. The Amendment noted “an urgent need” to restore US-based capabilities for manufacturing sintered Nd-Fe-B magnets for defense applications and to eliminate the vulnerabilities in the US defense supply chain as they relate to these “key materials”. At present there are no manufacturers of sintered Nd-Fe-B magnets in the USA.

The Amendment mentioned the findings of the recent Government Accountability Office [GAO] report on rare earths. It further noted that the USA was technologically capable of restoring a Nd-Fe-B manufacturing capability, but that restoring such capability would take 3-5 years. Noting that worldwide supplies of rare earths “are expected to tighten significantly within the next 3-5 years” and that there is an appreciable time to get new parts qualified for defense programs, the Amendment noted that work “should begin immediately” on restoring Nd-Fe-B production capability “to avoid future weapon system delivery disruption”.

Having made these observations, the Amendment then required that:

Not later than 90 days after the date of the enactment of this Act, the Secretary shall submit to the Committees on Armed Services of the House of Representatives and the Senate a plan to establish a domestic source of sintered neodymium iron boron magnets for use in the defense supply chain.

The Amendment further clarified what constitutes a “domestic source” of Nd-Fe-B magnets by stating that:

For the purposes of subsection (b), the capability to manufacture sintered neodymium iron boron magnets includes the alloying, pressing, and sintering of magnet materials. It does not include manufacturing magnets from standard shapes or imported blocks of neodymium. The Secretary’s plan shall not allow the grinding or reprocessing of neodymium to be considered a `domestic source of sintered neodymium iron boron magnets’.

This latter comment relates to the practice of companies procuring blocks of Nd-Fe-B magnet material from China, Japan, Germany and elsewhere, and then grinding the blocks into a final shape in the USA, before magnetizing or assembling the blocks into magnetic devices.

Rep. Coffman’s Amendment was considered in concert with several other amendments ‘en bloc’, and this group of Amendments passed by a voice vote. Section 839 is therefore now a part of the final passed House version of the NDAA. I asked Jeff Green, the industry lobbyist who has been working diligently on the issue of rare earth supply chain vulnerability, what this says about the awareness of members of Congress of these issues. “There is clear bi-partisan agreement on this issue,” said Mr. Green, “as evidenced by the fact that both the Chairman and Ranking Member of the House Armed Services Committee moved to submit this and other Amendments en bloc”. It is clear that the combination of growing mainstream interest on rare earths, and events such as the March hearings in the House on rare earths, and the recent publication of the GAO report, have had an impact. “We are seeing some traction,” said Mr. Green, “on some key issues of importance to national security and defense”.

The combination of the language in Section 835 and 839 of the NDAA is pretty powerful, certainly as it related to the production of rare earth magnets in the USA. While I am not sure that it would actually take as long as 3-5 years to get Nd-Fe-B production up and running again [assuming that the appropriate capital investments were made], certainly at least a couple of years would be reasonably required to build and install equipment, to optimize processes and to get people trained. The larger headache is what to do about the creation of US or North American-based rare earth refining capabilities, the absence of which is a critical problem in the process of getting the supply chain back up and running. It remains to be seen how the Department of Defense will tackle this issue, if the language in the NDAA as it presently stands is eventually signed into law.

There is one other potential wrinkle in the Nd-Fe-B story; that of patent licensing. While the decline of North American Nd-Fe-B production was very much related to Chinese pricing issues, the restoration of such production for commercial purposes has in part been hampered by red tape associated with a suite of patents on Nd-Fe-B that Hitachi Metals of Japan presently holds. Originally owned by Sumitomo Special Metals, these patents have been licensed to specific companies over the years, some of whom did have production in the USA. However, indications are that Hitachi Metals is not keen to issue new licenses to companies in the USA for Nd-Fe-B production; this is likely to be one reason for the delay in the proposed rare earth magnet joint venture between Molycorp Minerals and Arnold Magnetic Technologies, announced last year.

Further complicating matters is the arcane legal status of some of these patents. While many of the original composition-related patents have since expired, many of the newer patents have not, with some of the more important ones not expiring until after 2014. However, some industry insiders are speculating, and not just privately, that there are fundamental flaws in the patents themselves and how they have been interpreted over the years, including the mis-translation from Japanese into English, of critical parts of the original patent claims.

All of this may, however, be moot, for defense-related Nd-Fe-B production in the USA at least, if it is formally determined that the production of Nd-Fe-B magnets in the USA, is in the national interest. It is a long-established legal convention that the US Government can legally take and make use of intellectual or other property for its own purposes, so long as appropriate compensation is given in return. Indeed, this is enshrined in the Fifth Amendment of the US Constitution which states, in part, that private property cannot be taken for “public use” without the provision of “just compensation”. So, in the event that the procurement of ‘home-grown’ Nd-Fe-B magnets by the Department of Defense is endangered by the patent situation, there is a fairly clear way out; simply taking the intellectual property associated with the magnetic material patents, and allowing manufacturers to use it to produce magnets, in return for ‘reasonable’ compensation to Hitachi Metals.

Of course, it’s unlikely that things will get to that point; a variety of interactions between Washington and Tokyo would no doubt take place before things escalated, in order to ‘encourage’ Hitachi Metals to ‘do the right thing’. Besides, with only a few years left on these patents, excessive intransigence hardly seems worth the effort…

First published at RareMetalBlog.

Yesterday CNN aired a short piece on rare earths, and growing concerns on their supply. The video can be viewed here:

Earlier this year, the release of the Government Accountability Office [GAO] report on rare earths garnered much attention, with its analysis of the vulnerabilities in the defense supply chain, particularly relating to to the geographic concentration of rare earth supply in China. Some may recall that this report was the result of language inserted into the National Defense Authorization Act [NDAA] for FY2010, which required that the head of the GAO, the Comptroller General, submit such a report to the Armed Services Committees in Congress. There was criticism of the report from a number of sources, primarily complaints that the report did little to move the issues of supply chain vulnerability forward.

Late last month, the Chairman of the House Armed Services Committee [HASC], Rep. Ike Skelton [D-MO], and the Committee’s Ranking Member, Rep. Buck McKeon [R-CA], introduced a proposed FY2011 version of the NDAA to the HASC. The bill was considered by the Committee and last week was recommended for consideration by the House as a whole, for a vote.

As was the case last year, language has been included in the proposed NDAA, relating to rare earths, and their role in the defense supply chain [language with which observers of the proposed RESTART Act will be familiar]. The language kicks things up a notch this time, with Section 835 of the Act requiring, if passed into law, that the Secretary of Defense be specifically tasked to:

undertake an assessment of the supply chain for rare earth materials and determine which, if any, rare earth materials are strategic materials and which rare earth materials are materials critical to national security.

The bill defines a “strategic material” as one which is “essential for military equipment”, is also “unique in the function it performs” and “for which there are no viable alternatives”. It also includes language that amends existing law to define “materials critical to national security” as those materials:

• which are needed for the production and maintenance of equipment used by the Armed Forces in military operations, AND

• whose supply could be restricted by actions outside of the control of the US Government.

The proposed legislation goes on to say that the Secretary of Defense may “consider the views of other Federal agencies, as appropriate”, likely a reference to the recent Request For Information published by the Department of Energy on rare earths, at the very least.

The bill goes on to state that:

any study conducted by the Director, Industrial Policy during fiscal year 2010 may be considered as partial fulfillment of the requirements of this section;

and that

any study conducted by the Comptroller General of the United States during fiscal year 2010 may be considered as partial fulfillment of the requirements of this section

The former comment here refers to a report on which the Department of Defense is presently working, which is due to be published in September 2010. The latter refers to the aforementioned GAO Report, published last month.

The bill specifically asks the Secretary of Defense to

consider the sources of rare earth materials (both in terms of source nations and number of vendors) including rare earth elements, rare earth metals, rare earth magnets, and other components containing rare earths.

The bill would require that, if the Department of Defense finds that one or more rare earths is indeed either strategic or critical in nature, a plan be developed to get the entire rare earths supply chain up and running in the USA again, and to eliminate any and all vulnerabilities in the supply chain, by the end of 2015. Areas for consideration in such a plan would include:

• the possibility of stockpiling of such materials
• the identification of problematic trade practices that could impede the supply chain
• an assessment of the climate for financing the revival of all aspects of the rare earths supply chain
• provision of R & D funding

The bill would give the Secretary of Defense six months from enactment, to report back to Congress on the findings of the assessment described earlier.

I asked Jeff Green, an industry lobbyist who worked with the US Magnet Materials Association on the recently proposed RESTART legislation, for his thoughts on the proposed language in the FY2011 NDAA.

“This will ensure that [the Department of Defense] does a complete assessment of the rare earth supply-chain,” said Mr. Green. “Congress is mandating an action plan rather than simply a status update.”

Despite prior efforts by Congress to provide mechanisms with which the Department of Defense could assess the criticality of certain materials in its supply chain, such as the creation of the Strategic Materials Protection Board [SMPB], there has apparently been little enthusiasm in the Department to use them. If this Act passes in its present form, or least without significant changes to the language described above, the Department would be required to take a number of concrete steps relating to the revival of the rare earths supply chain in the USA – IF it determines that such materials are either strategic or critical. If on the other hand the Department does not believe this to be the case [and this has been its position in the past, as evidenced by prior reports of the SMPB] then all bets are off.

We’ll continue to monitor progress with the legislation as it makes its way through Congress. In the meantime, you can see the current language in the legislation here.

First published at RareMetalBlog.

Yesterday, Rep. Mike Coffman [R-CO] sent a letter to his colleagues in the US House of Representatives, urging them to cosponsor House Resolution 4866, the Rare Earth Supply-Chain Technology and Resource Transformation (RESTART) Act of 2010, which he submitted to the House for consideration in March 2010.

The letter urged colleagues to co-sponsor the bill, which would

“[r]eestablish competitive domestic rare earths mineral production, processing, refining, purification, and metals production industries to support the growth of green job technology and manufacturing as well as the nation’s defense industry.”

Rep. Coffman went on to mention the recent Government Accountability Office [GAO] study on rare earth materials in the defense supply chain, which he requested be conducted last year, the results of which was released into the public domain last week. Rep. Coffman stated that

“The recent GAO Report on Rare Earth Metals in the Defense Supply Chain has highlighted the near term need for a sustainable supply chain on heavy rare earths in the U.S., both for critical American national defense and industrial applications.”

Generally, the more co-sponsors that a bill has, the greater are its chances that it will move through the various processes required for it to ultimately become law, either on its own or tucked into other legislation.

In addition to his “Dear Colleague” letter, earlier today Rep. Coffman sent a letter to leaders of the House Armed Services Committee, asking that hearings be scheduled in the near future to address the findings of the GAO study, and to give this committee time to gather information in order to “draw attention to this national security threat.”

We’ll try to keep you updated on the response of lawmakers to Rep. Coffman’s request for cosponsorship of the RESTART Act, and his request for new hearings on the rare earths supply chain.

[First published at RareMetalBlog.]

Earlier this week the United Sates Government Accountability Office [the GAO] published a summary of its findings on “Rare Earth Materials in the Defense Supply Chain“. As you may recall, this was in response to the mandate given to the GAO late last year as part of the National Defense Authorization Act for FY2010. This legislation said that:

“not later than April 1, 2010, the Comptroller General shall submit to the Committees on Armed Services of the Senate and House of Representatives a report on rare earth materials in the supply chain of the Department of Defense”.

The report was to address, at a minimum, the following points:

1. An analysis of the current and projected domestic and worldwide availability of rare earths for use in defense systems, including an analysis of projected availability of these materials in the export market

2. An analysis of actions or events outside the control of the Government of the United States that could restrict the access of the Department of Defense to rare earth materials, such as past procurements and attempted procurements of rare earth mines and mineral rights.

3. A determination as to which defense systems are currently dependent on, or projected to become dependent on, rare earth materials, particularly neodymium iron boron magnets, whose supply could be restricted (A) by actions or events identified pursuant to paragraph (2); or (B) by other actions or events outside the control of the Government of the United States.

4. The risk to national security, if any, of the dependencies (current or projected) identified pursuant to paragraph (3).

5. Any steps that the Department of Defense has taken or is planning to take to address any such risk to national security.

6. Such recommendations for further action to address the matters covered by the report as the Comptroller General considers appropriate.

So, did the GAO accomplish its task?

The first thing that the GAO did in its summary report was to restate the objectives as a set of questions:

• What does existing information show about current sources and projected availability of rare earth materials?

• Which defense systems have been identified as dependent on rare earth materials?

• What national security risks has DOD identified due to rare earth material dependencies, and what actions has it taken?

The GAO apparently interviewed quite a number of individuals from various parts of the Department of Defense, industry and academia.  They specifically mention having been in touch with the Rare Earth Industry and Technology Association, and selected rare earth suppliers from each stage of the supply chain. They also looked at two specific defense systems as examples of systems that contain or use rare earths.

The report does a pretty good job of summarizing the situation on current and projected availability. The line item in this section picked up by most of the media pieces on the report, is the estimate [which comes from within the industry itself, apparently] that rebuilding a US rare earth supply chain may take up to 15 years. As one reads deeper into the report, this figure is perhaps a tad misleading. It is based on the time that it has taken some industry players to obtain mining permits and to deal with certain regulations. Clearly there are differences in the level of “mining friendliness” in certain jurisdictions, particularly in North America. Quebec, for example, was just recently ranked once again as the most attractive jurisdiction in the world for mineral exploration and development by the Fraser Institute, out of 72 different jurisdictions. California was ranked 63rd.  Without downplaying the major challenge that such permitting issues poses, the reality is that in the right jurisdiction, the rare earths supply chain could probably be back up and running within 3-6 years, if everything else fell into place on the technical and financial fronts, in a coordinated effort.

The report also does a good job in summarizing “defense system dependency”, noting that many components in defense systems that contain rare earths, are being sourced from China via sub-tier contractors. It also notes that the dominance of the rare earths market by China, may affect the availability of these materials in the US in future, with some individuals believing that China’s plans for greater vertical integration will increase market dominance.

Here’s the thing: as a number of colleagues of mine in our industry rightfully point out, the vast majority of demand for rare earths in China, is for use in the production of finished components and goods in China, using Chinese workers, for export out of China into Japan, Europe and North America. I do not share the view expressed by some, that there is a concerted effort by the Chinese to “squeeze” the West, through the restriction of rare earth raw material exports. Since finished goods are of more direct value and importance to the West than the raw materials themselves, squeezing the export of those items would surely be the “better” approach if that was the Chinese intent. That said, I certainly recognize the risks involved in being dependent on a single geographic area for the source of supply of anything, whether its rare earth-based components or anything else.

This goes double for components and end products that the Department of Defense needs for its supply chain. That’s why I am a little leery of the fact that despite having identified a number of vital rare earth components in the defense supply chain as coming from China, the GAO apparently decided to defer further investigation and recommendations in this area until the Department of Defense completes its own report on the subject, in September 2010. As I’ve written about elsewhere, in recent years, despite growing awareness of the dependency on China for rare earths and associated components, the Department of Defense has been reluctant to classify rare earths as being critical to national security, which would subsequently obligate the Department to take certain steps to safeguard supplies.

Things are perhaps changing in this regard though – the GAO report notes that a National Defense Stockpile configuration report in 2009 indicated that obtaining supplies of certain rare earths such as lanthanum, cerium, europium, and gadolinium had already caused delays in some weapon systems production, which led to recommendations for  further study to determine the severity of the delays.

In conclusion, I would say that there was very little in the report that was not already “out there” in the public domain. However, having this information collated and presented by the GAO, to lawmakers, may lend the subject the heft and credibility required to see concrete steps taken to help get a North American rare earth supply chain up and running again, should those step require assistance from the legislative branch of government.

The next milestone then, will be the release of the DoD report on rare earths in September 2010. In the meantime,we’ll be sure to keep an eye out for any further developments along the way.

[First published at RareMetalBlog.]

I am presently attending the Technology Rare Earth Metals (TREM’10) meeting in Washington D.C. . So far the event has been very lively and there have been numerous discussions on all aspects of the supply chain for rare earths, lithium and other metals.

A story which broke this afternoon, of major significance to the industry, is the news that Congressman Mike Coffman, a Republican Representative from Colorado, earlier today introduced a new bill to the US House, “to address the looming rare earths crisis“. The proposed legislation is House Resolution 4866, the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2010 (RESTART Act), and although it shares a name with a related prior draft proposal that was circulating recently, it is a distinctly different approach for taking on the issues that the rare earth supply chain faces in the US. The Act would require that the United States develop a policy to:

“take any and all actions necessary to ensure the reintroduction of a competitive domestic rare earth supply chain, to include the reintroduction of the capacity to conduct mining, refining / processing, alloying and manufacturing operations using domestic suppliers to provide a secure source of rare earth materials as a vital component of national security and economic policy.”

Per the United States Magnet Materials Association, the RESTART Act would specifically initiate a number of key activities:

• Establish a Federal government rare earths working group, with representation from senior appointees of the Departments of Commerce, Defense, Energy, Interior, and State as well as the Office of the U.S. Trade Representative and the Executive Office of Science and Technology Policy at the White House;

• Assess the domestic rare earth supply-chain to determine which rare earth elements are critical to America’s national defense and economic security;

• Create a national stockpile within the Department of Defense for important rare earth materials;

• Evaluate international trade practices in the rare earth materials market relative to market manipulation and initiate appropriate action through the World Trade Organization and elsewhere;

• Provide government-backed loan guarantees for domestic rare earths supply-chain development;

• Initiate warranted Defense Production Act projects and programs relative to our national defense and homeland security; and

• Support innovation, training, and workforce development of the entire domestic rare earth supply-chain.

In an accompanying news release, Rep. Coffman said that:

“The U.S. needs to support and encourage the development of a competitive, domestic rare earth supply chain to support American jobs and manufacturing and ensure our national defense interests. This legislation is critical to creating a competitive, domestic rare earth supply chain in the U.S. over the next 5 years. We have ample resources, just not the ability to access and process them. That must change; our national security depends on it.”

Rep. Coffman is scheduled to open the second day of sessions here at TREM’10 tomorrow with a keynote address, and will no doubt touch on the RESTART Act. On or before April 1, 2010, the Government Accountability Office is required to complete a report on the extent to which the defense supply chain is currently dependent upon rare earths; it was Rep. Coffman who introduced the specific language required this report, into last year’s Defense Authorization Bill.

You can see the proposed RESTART Act by clicking here.

[First published at RareMetalBlog.]

Elected politicians in Washington, D.C. have historically and traditionally given very little thought to Canada, except when they were forced to give Canadians a voice in a decision, either because of American politics or a foreign war or the threat of war. One of the very few times for example, that Canada was mentioned in the American 2008 presidential campaign, was early on when a clueless primary candidate said that she would reopen NAFTA if chosen by her party and elected. The candidate even frightened her own supporters with her ignorance of modern North American trade dynamics, and she was saved from this gaffe only when her handlers managed to spin the story to be about a Canadian diplomat who had apparently commented after hearing the remark that Canada could easily find other buyers for its resources if the US wished to terminate the NAFTA agreement. The story incredibly became “those Canadians are threatening us with a trade war.”

American environmentalists who have disproportionate power to their numbers, due to selective investments in elected politicians, regularly whine about the evils of extracting oil from shale (USA) or from tar sands (Canada), but this never prevents them from driving their Canadian-fueled and often -manufactured vehicles to rallies against such production.

My uncle Yale died on the beach at Anzio while disarming a German mine, so that Canadian and US forces could land. He and his brother were transported to the Anzio beach along with their fellow Canadian Rangers in a landing vessel made in the USA and under cover of US Naval aviators and US battleship artillery. But that was then. I have heard since that day that Canadians can always be counted upon to do the right thing – i.e., to do whatever is best for the USA.

Today however, with regard to the rare metals that form the brain and nerves of our technological civilization, Canada is perhaps ready to negotiate with Washington as a more than equal trading partner. America’s version of a permanent civil service, the hired employees of the various cabinet offices, which are, in particular, Defense, Interior, and Commerce, tell me that they are aware of the critical importance of Canada’s natural resources to the American way of life, and that they have always been aware. Unfortunately, as I am told over and over again, the politicians are in charge but on natural resource supply issues, other than oil, they are clueless.

Last year, there began to be a sea change in Washington with regard to at least one category of non-oil resources, the rare earth metals. Bureaucrats first at the US Department of Defense, and then at the Departments of Commerce and Interior, began to study the market fundamentals and both the military an industrial uses of the rare earth metals. I was asked to participate in roundtable discussions about rare earth metals at the Pentagon, and I was able to invite and get acceptances from Washington officials to speak at conferences, of which I was an organizer.

In late 2009, I was asked  to comment on legislative additions to the US National Defense Appropriations Act for Fiscal Year 2010 (FY210 NDAA), which required the Secretary of Defense to initiate a study of the rare earths market to be made and delivered to Congress by April 1, 2010. Warp speed for such a study in Washington time. The mandate for the study became law when President Obama signed the FY2010 NDAA. It is underway at the Government Accountability Office (GAO) with data collection being supervised by the Department of the Interior, which is in charge of both actual mining and resource data collection in the USA. I have also participated in the drafting of an Act known as RESTART that would fund the restarting of the rare earth supply chain into the USA. This is the most rare earth metals activity I have ever seen by the US Federal Government, but it still has a long way to go before it is enacted or funded. But it is actually underway.

The rare earth supply “crisis” that came to public attention last year when China hinted it might further restrict the export of rare earths and even stop completely the export of the higher atomic numbered, “heavy,” rare earths, brought Canada onto the radar screen in Washington. Canada has two rare earth mining ventures well on the way to production, Great Western Minerals Group (GWMG) and Avalon Rare Metals, as well as a myriad of others in process, all financed in Toronto or Vancouver. Canada also now has the first funded ETF venture for rare metals, including the rare earths, which will create in part an essentially private strategic stockpiling venture. I told a conference that I chaired in Washington, D.C., last October, that America’s future is dominated by the two “Cs,” China and Canada. I said that unless the US immediately recognizes that its resource base must be North American not just American, then Canada and China would become larger and larger natural trading partners in natural resources.

I believe more than ever, that unless Washington and Wall Street recognize the critical importance of developing natural resource production in Canada, there will sooner or later be a reckoning. The reckoning will be that the American standard of living declines from one generation to the next for the first time, even as that of Canada and China grows.

Allow me to pose a question: with regard to the rare earths, is there a global threat of supply interruption by China – or is any threat really due to a failure of the American way of doing business?

America was actually self-sufficient in its supply of rare earth metals until 2002. In that year, due to predatory pricing from China, Molycorp shut down its mining and refining operations at the world’s best known and best documented high reserve high grade rare earth mine at Mountain Pass, California. In 2002 all of America’s needs for the rare earths then being used, could have been met by the existing production capacity at Mountain Pass. There were even then in 2002, other operations within the USA refining and purifying rare earth metals, alloying them, and making magnets, batteries, catalysts, and laser components from domestically produced rare earths, principally mined in California but with some also then produced in Florida. The supply and value chains for manufacturing rare earth dependent products within the US were complete.

In 2002, China’s pricing, even delivered within the USA, dropped below that of Molycorp’s costs and the company elected to shut down the rare earth mining facilities rather than operate at a loss. Washington and the National Association of Manufacturers were blissfully unaware of, or disinterested in, these events either in California or Inner Mongolia. although a 5% tariff on imported rare earths had been enacted and, incredibly, is still in place, to help Molycorp, but alas in the clueless rush of 2002 by short-sighted Americans to outsource everything to China, it looked like a brilliant idea to even source their critical raw materials within China. Congress was careful though not to allow rare earths to be deemed critical or even given the lowly title of strategic, for fear that this might make waves in the commercial world of the lobbying vote buyers or generate a “Buy American” ripple among in the somnolent voters.

Why have American companies systematically ignored long term risks of supply interruption so easily insured against? One answer is to examine the use of the word “guidance” in Stockpicking Land, otherwise known as Wall Street. Often meaningless, because they fail to take into account real contingencies, are the exact figures given as “guidance” by public companies. Share prices then actualize these made-up figures by going up if they are met and down if they are not. This means as it has always meant, that the actualization of long term planning is of little or no interest to corporate financial officers, except as the actual ongoing capitalized costs of such planned operations may reduce earnings in the quarter for which guidance is being sought. Such impact is to be avoided at all costs – excuse the pun – if earnings are to be maximized and so long term projects with high front-end costs, such as mining and refining, are to be avoided by prudent bean-counters. This “the share price this quarter is all that counts” mentality has now brought on the rare earth supply crisis, which, since it has carried over from 2009 to the present day and grown ever more ominous, I now christen “The Rare Earth Crisis of The Second Decade of the Twenty-First Century.”

This nonsense approach based on share price being more important than long term survivability, has basically eliminated projects that are high cost with long time for return on capital, such as securing supplies of rare metals from the core “competency” of Fortune 500 corporations.

Although there is no present or near term military threat status, or even posture, between the United States and the People’s Republic of China, there is a long term threat to American economic independence, which, down the road, could indeed impact the threat response capability of the United States military; it is this long term threat that has been ignored until it has become a shorter term threat. Continuing to ignore the threat of supply interruption of strategic and critical materials is now foolhardy at best and may be dangerous to more than our economic well-being.

Yet even today, both the New York Times and the House Armed Services Committee seem to be unaware of the results of American financial, industrial, and political myopia and seek to personify a threat of supply interruption as being by China rather than being on account of American inaction. Washington’s politicians are charged with the common defense, yet they ignore a grave threat to the ability of the United States to maintain economic independence and military superiority while showing grave concern only for special interest group projects. Incredibly, they vote billions to create green jobs in industries where Asia has clear superiority such as battery development and manufacturing, but they ignore the one investment that could give US technology and know-how a clear advantage; the production and refining of rare earth metals and their end products. This industry could be revived and built to a world class level in less than 5 years by a government guarantee of seed money of less than 2 billion dollars – just one day of current Defense Department’s expenditures, or, a better measure, less than 2 hours of the Federal Government’s total expenditures. Note well that if the US gives up permanently its productive capacity for rare metals such as the rare earth metals, then it will be Chinese bureaucrats who decide the future of American industry.

Please go to the web site of the U.S. House of Representatives, House Armed Services Committee, and read and view the details of the 01/13/10 hearing on China - the exact title of the hearing was: “The Full Committee will meet to receive testimony on China: Recent Security Developments”.

One hour and 27 minutes into the hearing, Representative Coffman (R-Co) asked that a question about the rare earth supply issue be asked of the (military) witnesses. Although the question was not put directly to a witness, it was put into the record of the hearing so as to be answered later. It was a very good, very well thought out question.

If you wish to read the text of Colorado Representative Coffman’s question, I reproduce it in its entirety here:

Proposed Question for HASC Committee Hearing on China  - 01/13/10

“I’d like to ask the panel to address what I believe has become a very serious emerging national security threat as it relates to China. It has to do with industrial base supply issues controlled by China, and not any specific military threat. But I am hoping – given your backgrounds and your current positions focusing on Pacific Rim nations – to garner the benefits of your thoughts and comments.

Worldwide demand for rare earth elements is escalating rapidly. Rare earths are used in a number of applications including emerging green technologies, and many of us on this dais have concerns as to what that means for American innovation and domestic job growth. But the fact that so many national security and defense systems require these materials to function and operate is of greater concern for us here at this hearing.

Ninety-five percent of worldwide rare earth reserves being accessed today are located in China or controlled by Chinese-led interests. Today, there is no rare earth element production of significance taking place in North America or anywhere outside of China, and Chinese domestic demand for rare earth elements could easily equal Chinese production as early as 2012. Furthermore, in October 2009 an internal report by China’s Ministry of Industry and Information Technology disclosed proposals to ban the export of five rare earths and restrict supplies of the remaining metals as early as next year.

I ask both witnesses to comment on these developments and address their entities’ situational awareness of this reliance, what they feel are the strategic implications, and how they plan to develop appropriate policy to mitigate this impending supply crisis as it relates to national security and defense.”

As I said above, the panelists requested that the question be submitted into the record for response at a later date. That basically means they either didn’t know enough about the issue and/or were concerned about responding and saying the wrong thing. They were obviously not prepared for that line of questioning.

But I believe that the cat is out of the bag, and I urge my readers to write, email, or phone their Congressmen and ask when the question will be addressed and answered.

by CYRUS S DARABSHAW – RARE EARTH INVESTING NEWS – Published: Nov 19, 2009

Increasingly (at the risk of using a bad pun), rare earth metals are becoming not so rare in the rarified world of geo-politics. The sector, sooner than later, is likely to spark off a new global policy issue.

United States President Barack Obama may have asked China on his recent visit to that country, to play the role of a super cop in Asia, but the Prez should have also asked the Chinese to clarify the air on the rare earth metals sector.

In an investing world gone metal crazy, the rare earth metals sector is one that stands apart for its ‘Made in China’ sticker.

As much as 90 per cent of the world’s total supply of rare earth metals is under the Chinese control.

This is predictably making everybody involved very, very nervous.

It means even the US, the last global power standing, has to look to the Chinese for meeting its requirements, some thing which the US does not like to do even as a routine, leave alone, rare needs.

To the uninitiated, the loose term rare earth metals is given to a collection of 17 elements found in the earth. Many metals from this group are used in almost all kinds of electronics — from that cellular phone you use, to the critical missile guidance systems that guard a country’s borders.

While supply is low, demand is getting shriller.

Obviously, the US is jittery. Suddenly, some very rare metals and not the Al Qaeda are at the centre of brewing geo-political tensions involving military issues.

What gave the US and the other countries even more of a fright was the recent rumour that China was on the verge of restricting exports of the more difficult-to-find rare earths like terbium, europium and dysprosium.

The whisper campaign is enough to have set the proverbial cat among the pigeons.

So the cat had to react. Which it did in the first week of November.

On November 3, the US Prez signed the US National Defense Authorization Act for Fiscal Year 2010, mandating the General Accounting Office (GAO) to conduct an assessment of the rare earths used in US Department of Defense (DOD) supply chains.

The move sent the rare earths frat into raptures.

Lobbyists like Jeff Green who campaign on behalf of various companies within the rare earth metal industry were “absolutely thrilled.” His colleagues were elated since their interpretation was that the assessment would “finally” establish a baseline for the industry by taking their own independent assessment of the issue surrounding supply constraints of rare earth metals seriously.

The GAO is expected to report back to the executive branch by April 2010.

Uneasy pangs

However, the reporting back date (April 2010) has made some of the players queasy. Already.

Writing in the Agmetalminer.com, well-known metals commentar, Lisa Reisman said many in the sector feel that six months is “just not enough” for stock taking.

Green himself has been quoted as saying, “It will be tight but the GAO has some mitigation tools to address the time issue….they can issue interim reports.”

Organizations such as the Defense Metals Technology Center (DMTC) feel the opportunity could be used to facilitate a co-ordinated approach among all rare earth industry stakeholders.

In the US, Green and the DMTC are now planning to “tighten the notch a bit” and get industry players like the mining companies, ore refiners, processors, government players and end users together at events to discuss how the country’s policymakers can focus on securing the nation’s defence supply chain.

More than just a defence issue

Matters are not just confined to the military space though.

A new concern about the Chinese is now making the rounds on the trade front.

Jack Lifton, an independent consultant focusing on the market fundamentals and future end-use trends of the rare metals, expresses it eloquently when he says that those metals in which China dominates global production, that nation will have dual pricing.

That means domestic consumers will be able to buy at a cheaper rate than their international counterparts.
So, what’s wrong with that, you ask?

At the very least, shorn of all economic jargon, it would mean unfair trade practices since the Chinese product would be cheaper compared to the US one.

A mobile phone in China would cost say US$ 1 and the same with the `Made in China’ label will be sold to the US consumers for US$ 2.

According to Jack, the lower price will mean that Chinese manufacturers of consumer products using any of the rare earth metals will be able to continue producing them for the domestic market without a cost penalty.
Any rare earth metals exported from China or produced outside of China will be sold for much higher prices in the non-Chinese market.

Such a dual pricing would mean huge profits for the Chinese producers of rare earth metals. At this point, profit is very low now because the current prices for ‘rare earth concentrates’ at the mine are too low for there to be any reasonable return on investment, by western standards.

Only those miners such as Canada’s Great Western Minerals Group [GWG.V] and Avalon Rare Metals [AVARF.PK] who have high concentrations of the heavy rare earths and/or are vertically integrated, stand to be the mining beneficial.

So, the way things are moving in the rare earths sphere, followers can expect some fireworks (Chinese or otherwise) in the months to come.

Copyright © 2009 Dig Media Inc.